Health Spending Reached $1.3 Trillion

Published 8:00 pm, Monday, January 7, 2002

Associated Press Writer

Americans' spending on health care rose 6.9 percent to $1.3 trillion in 2000, including a 17.3 percent boost in spending on prescription drugs, the government says.

Health care spending averaged $4,637 per person, up from $4,377 in 1999, the government said in a report marking what its economists called the "end of an era of reasonable health care cost growth throughout most of the 1990s."

The report, released Tuesday by the Health and Human Services Department's Centers for Medicare and Medicaid Services, said hospital spending in 2000 rose to $412 billion, a 5.1 percent increase over 1999. For the first time in five years, nursing home expenditures increased, by 3.3 percent.

The higher spending in all categories was attributed to the increased bargaining power of hospitals and health providers for higher insurance payments and the aging of the post-World War II baby boomers.

When managed care plans first became popular, health care providers were often forced to deal with payment caps. Now, more providers are rejecting the strict management of costs by health plans, the report said.

As the population ages, health care gradually is becoming a bigger component of the nation's economy, rising from 13.1 percent of the gross domestic product in 1999 to 13.2 percent in 2000, the report said. It also indicated that health care costs continue to outpace the overall inflation rate of 2.7 percent in 1999 and 3.4 percent in 2000.

Spending on prescription drugs increased by even more, 19.2 percent, in 1999. The rise in 2000 represents the sixth straight year that the percentage increase in spending on prescriptions was in double digits.

Government economists attributed the 2000 increase to the aging population and consumer demand for newer, higher-priced drugs that are now marketed directly to them on television.

About 15 percent of national health spending was out-of-pocket expenditures _ a share relatively unchanged since 1994. Prescription drugs were the largest single component of out-of-pocket spending, 20 percent, according to the report.

Those paying those out-of-pocket prescription drug costs are mostly seniors who have no insurance coverage, the report said. Physician services accounted for 17 percent of out-of-pocket spending, and over-the-counter drugs for 15 percent.

"These new expenditures are another indication that the burden on consumers is growing," said Gail Shearer, who handles health cost issues for Consumers Union, publisher of Consumer Reports magazine. "It's been a pretty steady increase over the past few decades. The big question is when will this ever end."

Economists said the recession will create even more out-of-pocket expenses for health care consumers as employers lay off workers and opt for less expensive insurance plans.

"In this environment, employers are going to be inclined to choose less costly options for health plans," said Cynthia Smith, a government health economist. "Those who are uninsured are going to have a difficult time paying for health care services and those who are insured are looking at higher premiums."

The report appears in the January-February issue of the journal Health Affairs.